Share This Story!

Burrell alleges fraud in deal with El Paso business leaders

EL PASO - New Mexico entrepreneur and Las Cruces medical school founder Dan Burrell accuses an El Paso real estate investment trust, made up of some of El Paso's most successful business people, of fraud in a failed $20 million investment deal.

EL PASO - New Mexico entrepreneur and Las Cruces medical school founder Dan Burrell accuses an El Paso real estate investment trust, made up of some of El Paso's most successful business people, of fraud in a failed $20 million investment deal.

Burrell, founder and board chairman of the Burrell College of Osteopathic Medicine at New Mexico State University, made his claim in a lawsuit filed in El Paso federal court on June 10.

It's Burrell's response to the Borderplex Realty Trust's lawsuit filed in a state court in May. That lawsuit claimed Burrell's Borderplex Investment Partners breached a contract by failing to buy a promised $20 million worth of trust shares, which the trust planned to use for a multimillion-dollar Southwest housing venture.

The alleged contract breach forced the El Paso real estate investment trust, or REIT, to cancel its proposed housing venture with Encore Enterprises, a Dallas-based multifamily development firm, the trust reported in a letter to its shareholders.

Burrell's company alleges it canceled its agreement with the trust after buying $8.5 million worth of shares because it discovered what the federal lawsuit calls "multiple fraudulent misrepresentations" made by the trust.

Burrell's company Monday also filed a motion in an El Paso state court, asking the court to put the trust's lawsuit on hold while the issue is settled in federal court, which, Burrell's lawyers argued, has jurisdiction over claims tied to alleged violations of the U.S. Securities and Exchange Act.

The Burrell College of Osteopathic Medicine at New Mexico State University is a privately funded medical school located at NMSU, but operated separately from the university. It's scheduled to open in August in a new, 80,000-square-foot building.

Burrell, a New York state native who lives in Santa Fe and has a Yale law degree, has gained a high profile in New Mexico in recent years by first running a large commercial real estate company with a national portfolio of office buildings, then building the Las Cruces medical school. He owns an array of companies in various sectors, including a mining venture in Orogrande, N.M., and a huge ranch in Otero County

El Paso real estate mogul Bill Sanders, who is called Burrell's "trustworthy friend" in Burrell's lawsuit, asked Burrell to invest in the El Paso trust's new multifamily real estate strategy and to also help recruit other investors, according to the lawsuit. Sanders is one of the founders of the Borderplex Realty Trust.

"By virtue of its misrepresentations and material omissions, (Borderplex Realty Trust) succeeded in duping (Borderplex Investment Partners) into executing the subscription agreement and paying $8.5 million to (the trust) for the investment offering — which, of course, (Borderplex Investment Partners) would not have done had it known the truth," Burrell's lawsuit states.

The trust has refused to refund the $8.5 million despite offering to buy back shares from other investors who want out of the same investment offering, the lawsuit states.

Borderplex Realty Trust officials in a statement issued Monday said Burrell and his company spent more than five months evaluating their investment in the trust and negotiating a structure that would have given Burrell and his company "substantial governance rights" in the trust.

"All facts and relevant information regarding the transaction are fully disclosed in the offering documents," according to the El Paso trust's statement.

Many of the trust's board members and their family members "invested very substantial amounts on the same basis and upon the very facts that this particular sophisticated investor (Burrell's company) uniquely claims were not disclosed or that it did not understand," according to the trust's statement.

El Paso businessman Sanders and others formed the Borderplex Realty Trust in late 2006 to acquire Downtown buildings for redevelopment. It started as Borderplex Community Trust, but changed its name last year.

The trust assembled a $50 million Downtown property portfolio by 2011, some of which have since been sold. It owns two of El Paso's largest skyscrapers, the 18-story Chase and 21-story Wells Fargo bank buildings.

The Downtown El Paso investment strategy apparently was not successful, and around 2014, the REIT's board decided to focus on the acquisition and development of multifamily housing in certain rapidly growing Southwest U.S., markets, according to Burrell's lawsuit.

That led the El Paso trust to form a proposed joint venture with Encore Enterprises in Dallas for development of five multifamily properties, with total costs of $232.9 million, according to Burrell's lawsuit. The locations of the properties have not been publicly disclosed by the trust and were not disclosed in the federal lawsuit.

Burrell's lawsuit claims the trust did not disclose $13.8 million of Encore's project compensation, and other items that granted Encore an ownership stake in the proposed joint venture about 20 percent more than the size of its actual investment. That included the El Paso trust not disclosing it loaned Encore $2.6 million to buy land for one of the housing projects, according to the lawsuit.

The alleged undisclosed information was "highly material" to evaluation of the investment offering by Burrell's company because those facts reduced expected returns on Burrell's company investment and increased risk because of the absence of performance guarantees for the housing projects, the lawsuit states.

The trust turned down Burrell's company's offer to turn its cash investment into a zero-percent loan, or temporary investment so that the El Paso trust could complete the Encore deal, according to the lawsuit.

"With an existing shareholder base of more than 200 high-net-worth individuals and a board of trustees with extensive fundraising networks both nationally and globally, it is implausible" the $20 million that Burrell's company planned to invest in the trust "could not have been replaced in due course," the lawsuit states.

Instead, the Borderplex Realty Trust filed a lawsuit against Burrell's Borderplex Investment Partners in "a desperate attempt to shift blame for the failure of the (investment) offering, which actually fell apart when BRT's deception was discovered," the lawsuit states.

Burrell's company is asking the federal court to order the El Paso trust to refund its $8.5 million investment in the trust, and to order it to pay punitive damages of $17 million.

Bill Sanders, far right, is founder of Strategic Growth Bancorp., of El Paso. He sat next to former New Mexico Gov. Bill Richardson during a 2010 announcement in Santa Teresa.(Photo: RUBEN RAMIREZ/EL PASO TIMES FILE PHOTO)